Dallas Fed's Robert Kaplan: ‘Trade Tensions, Uncertainty Have Increased Significantly'

Federal Reserve Bank of Dallas President Robert Kaplan sounded a note of caution Monday about cutting interest rates."I am concerned that adding monetary stimulus, at this juncture, would contribute to a build-up of excesses and imbalances in the economy which may ultimately prove to be difficult and painful to manage," Kaplan wrote in an essay released by the Dallas Fed.He said his base case is for "solid" economic growth this year and for the labor market to remain at or past full employment. "In addition, financial conditions -- the cost and availability of credit -- are particularly robust by historical standards," he said.Kaplan's cautious tone contrasts with expectations in the financial markets that a July rate decrease by the Fed is all but a done deal. Investors see an almost 100% probability of a cut next month, with some looking for a half-percentage-point drop, according to pricing in federal funds futures contracts. One Fed official, Minneapolis President Neel Kashkari, has come out publicly for a 50 basis point move.Kaplan acknowledged that "trade tensions and uncertainty have increased significantly over the past two months," dampening business investments and possibly slowing manufacturing output. "Downside risks to the outlook have increased," said Kaplan, who isn't a voting member on the policy-setting panel this year.  Continue reading...